Five things to consider if you’re buying an industrial property

Five things to consider if you’re buying an industrial property

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It may not have the kerb appeal of residential purchases, or the corporate feel of commercial premises, but for investors looking to make strong returns industrial property is becoming a popular choice.

Analysis from property giants Knight Frank recently revealed industrial property investment grew by a record 80% in 2017 compared to 2016 levels, with transactions totalling almost £11bn; more than £7bn of which took place in the second half of the year.

In addition, Cushman & Wakefield reported that in Q3 of last year, industrial property continued to significantly outperform other commercial property sectors, posting a total annual return of 16.8% and 14.7% for distribution warehouses, compared to 7.7% and 6.8% for offices and retail respectively.

Growth has continued into this year too, with take-up in the UK warehouse market reportedly hitting a record 13.1m sq ft in the first three months of 2018.

Lisa Evans, property solicitor at Kirwans law firm said: “The statistics make a very convincing case that the smart money is now on the industrial property market.

“The growth of online retailers in particular has led to huge demand for good quality industrial property, and investors are keen to capitalise on the surge in interest.

“In the last month alone we’ve seen news emerge that industrial and logistics has surpassed offices for the first time as the preferred sector for a third of all Europe, Middle East & Africa (EMEA) investors, and the continued flow of transactions illustrates the strength of the reports.

“Plans in Cheshire to establish a groundbreaking Energy Innovation District – a move that could cut energy costs for industrial occupiers by 20% and so woo them to the region – provides further evidence of just how seriously investors are taking industrial property that will house energy-intensive businesses in particular right now.”

However, making the move into industrial property is not for the faint-hearted. Here, Lisa reveals the key considerations would-be investors should consider before taking the plunge.

1) Planning permission
Does the property have planning permission for the particular use you require? Check whether you’ll need to obtain planning permission for your intended use, and whether or not you’re likely to get it before signing on the dotted line.

2) Vehicular access
Identify the considerations of potential tenants. Will there be a continued flow of lorries? Will this affect nearby residents? Are there restrictions in place relating to collections or deliveries, perhaps with regards to noise and pollution levels?

Environmental Health have the powers to take action under the Environmental Protection Act 1990 if they believe that excessive noise is having an impact on the health and wellbeing of local residents, so if this could create a problem for your tenants, consider investing in premises well away from residential properties with a clear and defined route for vehicular access.

3) Consider waste
It may be a mundane factor, but it’s also an important one. Are your potential tenants likely to generate much waste? Does the premises have suitable waste storage facilities? The more your property can offer in the way of helping businesses to meet their own legal obligations, the more attractive it will be to tenants.

4) Services and utilities
For most properties, setting up services and utilities is a fairly straightforward operation. For industrial premises, however, ensuring that the supply will meet the needs of tenants can be a more protracted process.

Contact the relevant water/gas/electricity suppliers to discuss potential requirements and find out whether the supply already provided will be sufficient for future tenants. If not, sale price negotiations may be required in order to take into account the cost of fitting the new, larger, connection.

5) Ensure the land is not contaminated
The implementation of the Contaminated Land Regime (CLR) under the Environmental Protection Act 1990 has led to contaminated land becoming one of the most pressing issues for property lawyers today.

Contaminated land, where substances are causing or could cause significant harm or pollution to people, property, protected species, surface waters or groundwater, can result in huge penalties for the parties deemed responsible. The really alarming news is that if the person who ‘caused or knowingly permitted the land to be contaminated’ cannot be found by the local authority, then the current owner or tenant may face charges instead.

Land previously used for factories, mines, steel mills, refineries and landfill tends to carry a risk of contamination, so special attention should be paid if any of these uses have formerly been linked to your potential purchase.